The termination of the bank-client relationship in South African banking law
Pages | 54-69 |
Author | Mzwandile Ngidi |
Published date | 01 June 2020 |
Date | 01 June 2020 |
DOI | 10.17159/2225-7160/2020/v53a4 |
54 2020 De Jure Law Journal
The termination of the bank-client
relationship in South African banking law
Mzwandile Ngidi
LLB (UP)
Final Year MPhil candidate: Tax Policy and Tax Administration
African Tax Institute, Department of the Economics University of Pretoria
SUMMARY
In the year 2015/16, some of the major South African banks such as
Standard Bank, terminated its bank-client contracts with its customers.
The customers argued that Standard bank issued no notice of termination
of these bank-client contracts. Alternatively, if the bank issued the notice of
termination, the period thereof was insufficient for the client to arrange for
an alternative baking option. As a result, the client argued that Standard
Bank unlawfully terminated the bank-client relationship. Consequently,
this paper examines this termination by considering, i) the nature of their
relationship, ii) the duties of both the bank and the client, iii) and iv) the
ways and circumstances which the bank-client contract may be terminated
in South African banking law.
“The customer’s morality and integrity are accordingly characteristics which
impact on the customer/banker relationship”1
1Introduction
After the Guptas’ scandal,2 in 2015/16 the major South African banks
issued notices of termination of their contractual relationship with inter
alia Oakbay Investment (Pty) Ltd, Siva Uranium (Pty) Ltd, TNA Media
(Pty) Ltd. The termination of contract came as a result of these Gupta
owned companies being suspected and alleged of its directly or indirectly
(GSJ) para 32.
2 On the 21 September 2017, it was reported that South Africa's Gupta-
owned Oakbay and other affiliated holdings were faced allegations of using
ties with South Africa's present to wield undue influence. These companies
were further suspected of being directly or indirectly involved in various
illicit activities. Consequently, between December 2015 and April 2016 all
four major banks in South Africa, there are Standard Bank, Nedbank,
Barclays Africa and FirstRand bank terminated the account of these
companies controlled by the Guptas relying on the reputational risk. In
passing one should mention that the banks derived its right of termination
not only from the contractual relationship with these companies but more
particularly from the Financial Intelligence Centre Act 38 of 2001,
especially s 21, 21B, 21C, 22, 22A, 26A, 26B & 29.
How to cite: Ngidi ‘The termination of the bank-client relationship in South African banking law’ 2020 De Jure
Law Journal 54-69
http://dx.doi.org/10.17159/2225-7160/2020/v53a4
Termination of the bank-client relationship in South African banking law 55
involvement in various illicit activities.3 This article, therefore, seeks to
determine whether a bank can, without the client's consent, close the
client's bank account. As such I first evaluate the relationship between
the bank and its client. Second, I consider the duties of both the bank and
its client in relation to banking contractual relationship. Third, I answer
the above vexing question by considering the current case law where the
courts were called upon to pronounce on the question, the legislation
governing banking practice and journal articles that seek to address it.
Essentially the article focuses on the banker-client relationship after
the banking contract has been concluded. For convenience purposes, I
shall refer to the banker-client relationship as the (“BC relationship /or BC
contract”). Throughout the discussion, a “bank” and the “banker” are
used interchangeably to refer to the bank as defined by section 1 of the
South African Banks Act 94 of 1990 (the “Banks Act”),4 and other
applicable regulations. It should be noted that banking law is a
transnational subject and thus its operation is further subject to
international standards.5 Consequently, reference is also made to foreign
and international law to clarify some of the banking law principles that
regulate the banking system.
3 Writer “Another Major SA Bank Closes its Doors to Gupta Company” https://
businesstech.co.za/news/finance/119245/another-major-sa-bank-closes-its-
doors-to-gupta-company/ (assessed 2018-04-06). Minister of Finance v
Oakbay Investments (Pty) Ltd; Oakbay Investments (Pty) Ltd v Director of the
Financial Intelligence Centre (80978/2016)[2017] ZAGPPHC 576; [2017] 4
All SA 150 (GP) (18 August 2017), par 12. Annex Distribution (Pty) Ltd v Bank
of Baroda (52590/2017) [2017] ZAGPPHC 608; 2018 (1) SA 562 (GP)
(21 September 2017).
4 In terms of s 1 of the Banks Act, a bank means a public company registered
as a bank in terms of the Act. Moreover, the purpose of this Act is to
“provide for the regulation and supervision of the business of public
companies taking deposits from the public and to provider for matters
connected therewith”.
5 Basel Committee on Banking Supervision Core principles for Effective
Banking Supervision Banking for International Settlements (The Basel Core
Principles) (2012) 1-79. This publications accessible at https://www.bis.org
(assessed 2018-09-19). (United Nations Convention against Illicit Traffic in
Narcotic Drugs and Psychotropic Substances, 1998; United Nations
Convention against Transnational Organised Crime, 2000. The primary
regulator of the Reserve Bank of India; Financial Action Task Force (FATF)
available at https://www.fic.gov.za/DownloadContent/NEWS/PRESSRE
LEASE/FIC%20Annual%20Report&202012-13.pdf (assessed 2018-09-19);
Politically Exposed Person (PEP); Banks Act 94 of 1990; See article 68(1) of
the United Nations Convention against Corruption Resolution 58/4 of
October 31, 2003 and the Money Laundering and Terrorist Financing
Control Regulations.
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